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NEW YORK | A federal appeals court on Friday upheld Chrysler’s sale of most of its assets to Italy’s Fiat, but the deal will remain on hold to allow an appeal to the nation’s highest court.

A three-judge panel of the 2nd U.S. Circuit Court of Appeals said it will delay the sale until 4 p.m. EDT Monday, unless the U.S. Supreme Court intervenes.

Meanwhile, General Motors Corp. said Friday it will pay $2 billion to Delphi Corp. to aid in the sale of the automotive parts supplier to a private equity firm, in exchange for equity of a newly restructured Delphi.

According to a Friday Securities and Exchange Commission filing, bankrupt General Motors will use some of the $30 billion in taxpayer funds it is receiving to help a California firm, Parnassus Holdings II LLC, acquire the auto parts maker. Delphi is struggling to emerge from its own 2005 bankruptcy filing.

Delphi is a former GM subsidiary and the automaker’s largest supplier.

Thomas Lauria, an attorney representing the trio of Indiana state pension and construction funds that appealed the sale of Chrysler to Fiat, said his clients will keep pressing their objections in court.

“We will be going to the Supreme Court to see if we can get some time to get this case considered by them,” Mr. Lauria said.

The Supreme Court will decide in the coming days whether to issue its own stay in the case, and possibly take up the appeal, or let the appeals court stay expire and allow the sale go through.

The Indiana State Police Pension Fund, the Indiana Teacher’s Retirement Fund and the state’s Major Moves Construction Fund claim the deal unfairly favors the interests of the company’s unsecured stakeholders ahead of those of secured debtholders such as themselves.

The funds also challenged the constitutionality of the Treasury Department’s use of Troubled Asset Relief Program, or TARP, funds to supply Chrysler’s bankruptcy protection financing. They say the Treasury did so without congressional authority.

“I would ask the court to view this as standing the bankruptcy process on its head,” Mr. Lauria said in his argument.

The Treasury Department said it was “extremely gratified” that the appeals court upheld the sale.

Chrysler lawyer Thomas Cullen said the deal is the only way to keep Chrysler operating, and the objectors would still get a recovery that’s the best they could hope for.

“The objectors are going to be harmed by the remedy they seek. They are doing better than liquidation,” Mr. Cullen said.

He said Chrysler’s former vice chairman and president, Tom LaSorda, spent 18 months looking for someone willing to enter a more favorable deal to buy or finance the automaker.